Capitalist Corner

September 27, 2006

It Was Wal-Mart, In Arkansas, With The Corporate Memo

That's that, then. Wal-Mart, the largest employer in America, has decided to cease offering traditional health care plans and move entirely to high-deductible, HSA-style offerings. Wake-Up Wal-Mart got their hands on some internal benefit memos, and here's what they showed:

Among the most striking findings outlined in Wal-Mart’s 2007 benefits booklet is the substantial health care cost a low-paid Wal-Mart worker would be forced to pay under the so-called ‘Value’ plan. A typical individual Wal-Mart worker who enrolls in the Value Plan will face high upfront costs because of a series of high deductibles, including a minimum $1,000 deductible for individual coverage, a $1,000 in-patient deductible per visit, a $500 out-patient surgical deductible per visit, a $300 pharmacy deductible, and a maximum out of pocket expense of $5,000 for an individual per year.

In total, when factoring the maximum out-of-pocket expense and the cost of the yearly premium ($598 a year for an individual under the Value Plan), a typical full-time worker (defined by Wal-Mart as 34 hours) who earns 10.11 an hour or $17,874 a year, would have pay nearly 30 percent of their total income for health care costs alone.

Incredibly, the health care cost burden actually worsens should an uninsured Wal-Mart worker enroll their family under the Value Plan. Again, because of multiple deductibles for each family member, and when factoring in the cost of the medical premium ($780) and maximum out-of-pocket expense ($10,000), a Wal-Mart worker whose family is insured under the “Value Plan” could pay as much as 60 percent of their total income towards health care costs under Wal-Mart’s most “affordable “health care” plan.

Yikes. This, of course, is only further evidence that it's time to stop making Wal-Mart offer decent health care -- which they will clearly not do -- and simply rip the responsibility away from them, ensuring all of their "associates" have generous, serious coverage they can fall back on.

More worryingly, Target has promised the same move. Which'll mean that the two largest retailers will both eschew traditional health care plans for low-cost (to the company), high-risk (to the employee), astonishingly stingy offerings. Now, of course, any retailers who seek to compete with them -- and that includes supermarkets, clothing outlets, and all the rest -- will be at a competitive disadvantage if they fund traditional health care plans for their employees. It also means producers will be under added pressure by Wal-Mart and Target to make the same shift in order to lower their labor costs and, thus, prices. If the producers refuse, Wal-Mart can simply replace them with their in-house brands. This is how a race to the bottom starts. This is how employer-based health security dies.

Comments

So the answer is National Socialism rather than shopping and working elsewhere?

Still looking for the location where Wal~Mart is the only store in the neighborhood. Target too. Have not found it yet, will report back when I do.

On the bright side, for those who agree with you, perhaps Wal~Mart will carry more petrol products and destroy "big oil." I prefer they carry GM products, but that is just my personal dislike of those products.

Also, for the gun haters, they sell a lot of shotguns, rifles and ammunition. Perhaps that will be the next industry to fold under the crushing pressure of Wal~Mart?

The decline of Ambassador/Mayor Andrew Young can be traced directly to his association with Wal~Mart too.

Dancing forward and back seems to be what WM does best. The more I look into HSAs the more I think they are great for someone with a dead-middle class income or higher. They do not translate into anything functional for lower income families or individual. And the only way for them to work for the middle incomes is if they are living well within their means. For example, if I was making $55,000 plus I could afford to get an HSA as long as I was willing to forgo home ownership - or at least put it off until I could save a substantial HSA. That, of course being contingent on not getting horribley ill. It does not work for anyone who works for the wages WM pays most of it's hourly workers.

The only way a HSA makes sense is if it does NOT have one of those horrible "use it or lose it" provisions where every 12 months you have to spend down everything in your account or the money goes poof. Those things go completely against the idea of longterm savings for health-related expenses.

I don't want the process to be as painful as it is shaping up to be, but once Wal-Mart, Target and then the major manufacturers start this race, the closer we'll come to the universal health care the country truly needs.

You're thinking of Flex Spending, fiat. HSAs all have provisions that you can carry over unspent money to the next year. Of course, you need money to put into your HSA account in order for it to carry over. Also, obviously the tax benefits of all of this will be lost on someone who is poor enough to barely pay any federal income taxes.

I have to wonder what Wal-Mart's contribution is to these plans? I imagine I could go out and buy something similar for myself right now (if not for some pre-existing conditions that might underwrite me out of it), without Wal-Mart's buying clout and without their employer contribution, and wind up paying something similar to what these employees are paying.

Posted by: spike | Sep 27, 2006 11:14:19 AM

The only way a HSA makes sense is if it does NOT have one of those horrible "use it or lose it" provisions where every 12 months you have to spend down everything in your account or the money goes poof. Those things go completely against the idea of longterm savings for health-related expenses.

Like spike said, that isn't part of HSAs. The whole point is to develope a huge savings so that as one gets older and health declines they not only have their deductible - they have enough to cover expenses not covered by their actual policy, such as glasses/contacts, voluntary surgeries, dentures or anything else. The idea is, if you start young, you can have everything you need to cover health related expenses by the time you retire.

At my current income level they just aren't feasible. But as my business grows and my income goes up, I may well end up going that direction. I would prefer to see UHC but short of that I have to protect myself and my family. At thirty, I have certain elevated risk factors for heart disease as well as other concerns. I want to ensure that as I get older I can, in fact see a doctor and get medicines they might prescribe. The enormous problem with HSAs at WM and similar service industry jobs is the lack of income to cover the deductibles. I could afford the policy attached to an HSA right now, the problem is covering the deductible - and I make a little more than your average WM rank and file employee.

Spike - Where I have been looking at them, they don't have nearly the strictures that traditional insurance policies carry. Pre-existing conditions just raise your policy price - but when they start out around $55 a month with the lower end deductible, an increase of 10% isn't that painfull. Shit, I'm sounding like R.G.

Sorry. Beleive me, I am far more interested in UHC than HSAs that do little to nothing towards addressing the actuall healthcare crisis this country has.

I don't know how comfortable I personally feel about advocating for the liberal version of "starve the beast." (The beast being employer-based healthcare, naturally.) Beyond my conscience telling me there are better ways, there is a political problem too. We want to make sure that Democrats have the ability to sympathize with the segment of the population directly affected by these changes. If liberal supporters go around proclaiming that this is the "tough love" needed to enact our healthcare agenda, that could project onto the politicians themselves. Afterall, I don't think people really have issues with employer-based healthcare as it is, provided they are offered it of course. Ultimately, I think the reasons universal healthcare is better is because it works better than employer-based care, not because people don't have employer-based care.

Adrock, I understand your concerns and don't wish to gloat about people who are losing their health coverage. However, until a majority of voters lose their coverage or are convinced they MAY lose their insurance, we will not get the political will to really tackle a universal coverage plan. I know a lot of liberal Dems who believe in the concept of universal coverage, but they won't support any changes to their current coverage. For Americans to embrace this magnitude of change, the fear of the known must outweigh the fear of the unknown. I hope I'm just too pessimistic.

Posted by: Marv Toler | Sep 27, 2006 11:58:06 AM

I can see both side of this - unless someone here has experience in Benefits purchasing or something HR related, it's hard to understand the bind many companies are in (I'm generalizing before going to Wal Mart specifically). Having worked closely with Benefits folks and with a friend in HMO land, I've seen both sides and the reality is that there's almost nothing being done to control costs in the health care systems, leaving insurance providers in a bind in terms of how to price coverage, and leaving companies in a bigger bind about how to subsidize their workers at levels we've all come to take for granted. As to Wal Mart, I'm not entirely sympathetic, but the fact remains they built a model which was never designed to be the bread winning income of a head of household. This was work conceived years ago as part time work for Moms, students and the like, and I doubt they ever fully planned for a huge work force relying solely on them for insurance. So it's a bind. That said, I'm appalled that their solution is to err on the side of providing next to nothing.

Second, while this could signal the death knell of employee coverage, I'm skeptical. In my ex-industry (advertising), there's virtually no discussion of ending the fairly luxurious coverage provided, and high end service workers would seriously balk at the suggestion. Which means that (and I hate to put it this way, but) the social elite are in no immediate need of nationalizing health care. That's likely to put the kibosh on anything happening well before 2010 (my guess), which means a number of years where middle and lower income workers get shafted. If I had to pick a way for the system to fall apart, that wouldn't be my choice. And lacking a good, cogent alternative, I think many people will simply throw up their hands. None of which strikes me as good developments for the single payer movement.

Posted by: weboy | Sep 27, 2006 12:03:39 PM

Help me with the math, here. It seems like the typical Wal-Mart employee (earning $17,874) would only pay 30% of their salary in health care costs if they experienced catastophic illness or injury in a given year - thereby eating up all those deductibles. Am I right?

Posted by: Victoria Ford | Sep 27, 2006 12:05:50 PM

Victoria,

Do you think that someone making $17,874 a year can afford to spend 30% of that on health care?

What about rent? $400/month? $500? That's pretty close to 30% right there. And be sure to take 7% away for FICA right off the bat.

People earning that much typically have a poor debt-to-earnings ratio, so they're going to pay more for car insurance, and probably more for a car as well.

The only "good" part of Walmart's plan is the same as the only "good" part of individual plans: negotiated pricing that is available only to insurance companies.

I agree that while hindsight might see this event as an ultimately good thing, that is 1)only if we manage to institute universal healthcare and 2)something that, is said now, would seem incredibly heartless.

Posted by: Stephen | Sep 27, 2006 12:30:07 PM

Guy Montag:

You haven't been looking in communities with populations under 20,000. I grew up in the rural south and no kidding, Wal-Mart really is the only place to buy most common retail goods within a half hour's driving distance.

When I left my home area for college there was one Wal-Mart and three grocery stores within that driving distance, those groceries representing three different chains. Now there's one Super Wal-Mart and one grocery store; the other two folded soon after the SWM opened.

I didn't mean to comment on the rightness or wrongness of the plan - I just wanted to clarify the numbers.

It seems to me that the numbers are where we run into trouble when thinking about health care costs (and probably most policy issues). Do I think that people should pay for a significant portion of their health care? As a policy analyst, I might say yes - more information (the "real cost" of the care you receive) helps people make better decisions. 30% of a person's income in a given year? Too much. But 30% of one year's income for a once-in-a-lifetime catastrophic illness or injury? It gets murky, and to think clearly about it we have to know what we're talking about.

Posted by: Victoria Ford | Sep 27, 2006 1:31:52 PM

Adrock,

The current system has plenty of problems, even for people who have earned the luxury of employee-sponsored health insurance.

Too many insurers, too many hospitals (and too many cardiac clinics, organ transplant services and MRI machines in particular), too much competition is one of the main things that is driving up the price of healthcare for all of us. Counter-intuitive, I know, but healthcare doesn't operate like most industries. If Universal Healthcare were managed properly, competition could be used positively to keep prices down, but we're not there yet. Getting to UHC will require some suffering, and we shouldn't be rooting for that. But it will require it, and it will be inevitable.

Posted by: spike | Sep 27, 2006 1:54:37 PM

Victoria, your math is sound but your reading comprehension needs some work. They said that an individual, with max out of pocket of $5000 + annual premiums of $598 and a salary of $17,874 per year would be paying nearly 30% (not sure where they got that, my math comes out to 31.3%).

When you go to the family plan with an out of pocket max of $10,000 and an annual premium of $780 again divided by salary of $17,874, then the percent is 60.3%.

In speaking to your other point... if only it took a once-in-a-lifetime catastrophic even to max out your $5,000 out of pocket max. With a $1000 inpatient deductible PER VISIT, a pharmaceutical deductible, AND an outpatient surgery deductible, one event like kidney stones (hardly life-threatening) could bankrupt our theoretical worker. All the "information" and "good decision making" in the world can't help you create money out of nothing.

Posted by: spike | Sep 27, 2006 2:01:54 PM

Erza said:

"... Now, of course, any retailers who seek to compete with them -- and that includes supermarkets, clothing outlets, and all the rest -- will be at a competitive disadvantage if they fund traditional health care plans for their employees. ..."

This is nonsense. Such retailors are at a disadvantage only if funding traditional health care plans costs more than the value their workers place on receiving such plans. Obviously an employer should question offering any benefit which costs the employer more than the perceived value to the worker.

Posted by: James B. Shearer | Sep 27, 2006 2:23:59 PM

Interesting that Wal-Mart apparently finds it worthwhile to operate in Hawaii even though they're required by state law to provide comprehensive health insurance to anyone who works 20 hours a week or more. They probably have lots of people working 19-hour weeks, but that can't be everybody.

James Shearer, the first week of introductory microeconomics does not necessarily provide a complete understanding of how labor markets work.

Posted by: DaveL | Sep 27, 2006 2:48:51 PM

Suppose the Wal-Mart employee with the high deductible coverage lands in the hospital and requires, say, a cardiac stent. Insurance pays $19,000 and the employee is responsible for $1,000 but can't afford to pay his or her share. Don't you think the hospital might be much more willing to reach an accomodation or even write off the deductible completely since it got paid $19,000 vs zero if the employee were uninsured. Furthermore, lots of people with these plans can pay their deductible or at least a significant portion of it. Bottom line: this coverage is a heck of a lot better than nothing. The peace of mind that comes from knowing that your family is protected in case of a truly catastrophic medical event such as a premature baby that needs to spend a month in the neonatal ICU is worth a lot as compared to being uninsured.

In most years, most people do not incur significant medical costs. Insurers will tell you that in any given year, 5% of its members account for 50% of claims costs while 70% of members account for 10% of claims costs. Furthermore, the high cost cases are not the same people from year to year.

I personally like high deductible plans for a variety of reasons, though we still need a lot more robust price and quality transparency to help patients make infomred choices as to where to obtain the most cost-effective treatment. However, I think the employer provided healthcare model could be improved by changing the deductible, the out of pocket maximum, and the employee's contribution to the premium from a flat dollar amount to a percentage of income with a reasonable flat dollar cap for high income employees.

Posted by: BC | Sep 27, 2006 2:55:06 PM

Don't you think the hospital might be much more willing to reach an accomodation or even write off the deductible completely since it got paid $19,000 vs zero if the employee were uninsured.

"Write off the deductible" means "submit the outstanding balance to a collection agency." That can still mess with the debtor's credit and possibly force him into backruptcy.

Writing off the deductilbe generally means writing off the deductible. The hospital will usually try to make a reasonable accomodation. It may settle for 5 or 10 cents on the dollar or $10 bucks a month for a year or write the bill off completely. If it thinks the patient can pay but refuses to and is uncooperative, it may bring in a collection agency. After adverse publicity regarding heavy handed collection practices on the part of some hospitals in the past, most have cleaned up their act by now.

Posted by: BC | Sep 27, 2006 3:52:52 PM

DuWayne,

Do you currently have health insurance?

No. Instead I have had to use the ER once in the last year, when I had pneumonia - carried it for three weeks before I realised I wasn't getting better and went in. Thankfully I had access to a non-profit hospital that covered all but $200 of the bill, letting me pay the rest on a monthly basis at $5 or more per month.

An interesting aside, WM new policy of providing $4 scripts for the uninsured is going to allow me to get on medication that will seriously increase my quality of life and get smoking cessation medicine to boot.

I have trouble with the whole "informed choices" and "cost-effective treatment" concepts. They assume rationality and thoughtfullness where they don't exist. When someone has a heart attack they aren't really in a positon to shop for the best priced care. When they find out that they have cancer they want to get rid of it, not "shop" for the lowest cost treatment. I believe that this is true even when deductables are high.

When the stakes are life and death, cost is not really an issue. The end result in these cases is bankruptcy, not price consciousness.

Posted by: Bill | Sep 27, 2006 4:13:32 PM

BC, it's all well and good to advocate this position to us, who are informed policy hobbyists.

Not to sound elitist, but if a person were capable of going to the hospital administrators and negotiating a discount like the one you're talking about, well, they wouldn't be working at WalMart. They would know enough about the way things work to get a better job. The approach you talk about is a good one, and I tell my friends about it all the time... but the average person is intimidated by bills and will not have the courage or knowledge to do what you say. Instead, their bills will be turned over to collections agencies, and then the hospital washes its hands of it.

I'm a Californian transplanted to DC, and surprisingly at peace with it. Or at least I was till it started getting colder. Job-wise, I'm the staff writer for The American Prospect. In the past, I've written for the Washington Monthly, the LA Weekly, The LA Times, The New Republic, Slate, The New York Sun, and the Gadflyer. I'm a damn good cook. No, really. Want to know more? E-mail, I'm friendly.